For United States franchise business owners, there are a variety of loan options available for new and existing business owners. Here we take a look at the major categories and what the high-level requirements are for each type. Have questions? Contact us for more in-depth detail on what United States financing options are right for your business.
United States Franchise Financing Options
Loan Type
Common Features
SBA – 7a
Larger, government-backed loans up to $5,000,000 with a 10-year term and an interest rate based on the Wall Street Journal Prime rate. There is no prepayment penalty.
- A franchise must be on the SBA Registry and the borrower must also be qualified.
- 20-30% cash injection, must be non borrowed funds
- Cash Reserves near 10% or more of the total loan
- Credit scores – 685
- Collateral – usually home equity is the most common
- Experience – either direct (for the food/fitness industry) or very relatable for other businesses
- Other factors include employment, debt to income ratio, and no current Bankruptcy
SBA
Working Capital/Express Loans
Available for $60,000 to $150,000, SBA these are government-backed loan with a 10-year term and the interest rate based on the Wall Street Journal Prime rate. There is no prepayment penalty.
- A franchise must be on the SBA Registry and the borrower must also be qualified.
- This is for start up businesses only (not for a resale)
- Requires 11% cash injection – non borrowed funds
- Cash Reserve – $50,000 in addition to the 11% injection
- Credit 685 minimum
- Collateral – usually home equity is the most common
- This loan can’t be used for any construction/buildout expenses
- Other factors include employment, debt to income ratio, and no current Bankruptcy
401k/IRA Rollover
Non-Debt funding option for those with pre-tax retirement accounts. Funds can be used penalty-free and without taking a taxable distribution. They can be used for any business expenses and to pay salary.
- Pre-tax funds can be from an IRA, 401k, 403b, 457, TSP, Pension, etc.
- Minimum of $50,000 in pre-tax funds required
- Monthly record keeping/compliance is required
- Timing is near four weeks from the start to funding
Personal Term Loans
Non-SBA Loan with terms between 5-7 years. Rates vary, with higher credit scores getting better the rates.
- Doesn’t require collateral
- Credit scores 700+
- Proven W-2 income of $50,000 or more
- No current Bankruptcy (must be discharged 7 or more years prior)
Unsecured Lines of Credit
- Credit scores 700+
- Low credit card debt
- Employment helps with pre-qualifications
- 0% introductory rates on multiple bank credit cards
- Cards can typically be liquidated for near 90% of the lines of credit
- Rates vary – the higher the credit scores the better the rates can be
Equipment Leasing
Helps to preserve cash with payments structured to meet your needs.
- Credit scores 675+
- Lower upfront costs
- No personal assets pledged
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